Glossary of Reverse Mortgage Terms
acceleration clause - the part of a contract that says when a loan may be declared due and payable
accrued interest - Interest that is earned but not paid, adding to the amount owed.
adjustable rate - A mortgage on which the interest rate, after an initial period, can be changed by the lender. While ARMs in many countries abroad allow rate changes at the lender's discretion ("discretionary ARMs"), in the US most ARMs base rate changes on a pre-selected interest rate index over which the lender has no control.
annuity - a monthly cash payment you get from an insurance company for the rest of your life.
appraisal - an estimate of much a house would sell for if it were sold; also called its market value
appreciation - an increase in a home's value
cap - a limit on the amount an adjustable interest rate may go up or down during a specified time period
closing - a meeting where documents are signed to "close the deal" on a mortgage; the time a mortgage begins
compounding rate - Initial rate plus .5% for periodic mortgage insurance premium (MIP).
condemnation - a court action saying a property is unfit for use: also, the government taking private property to use for the public by the right of eminent domain
creditline - a credit account that lets a borrower decide when to take money out and also how much to take out; also known as a "line-of-credit" or "credit line."
creditline growth rate - Same as compounding rate.
current interest rate - For current rates call the Fannie Mae rate-line at 1-800-752-7020. When prompted, push "1", then "7", then "1".
deferred payment loans (DPLs) - reverse mortgages that give you a lump sum of cash to repair or improve a home; usually offered by state or local governments
depreciation - a decrease in the value of a home
eminent domain - the right of a government to take private property for public use; for example, taking private land to build a highway
expected interest rate - in the HECM program, the interest rate used to determine a borrower's loan advance amounts; it equals the 10-year rate for U.S. Treasury Securities, plus a margin (see below)
Fannie Mae - a private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government
Federal Housing Administration (FHA) - the part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans
federally insured reverse mortgage - a reverse mortgage guaranteed by the federal government so you will always get what the loan promises; also, a Home Equity Conversion Mortgage (HECM)
fixed monthly loan advances - payments of the same amount that are made to a borrower each month
home equity - the value of a home, subtracting any money owed on it
home equity conversion - turning home equity into cash without having to leave your home or make regular loan repayments
Home Equity Conversion Mortgage (HECM) - the only reverse mortgage program insured by the Federal Housing Administration, a federal government agency
initial interest rate - in the HECM program, the interest rate that is first charged on the loan beginning at closing; it equals the one-year rate for U.S. Treasury Securities, plus a margin
leftover equity - the sale price of the home minus the total amount owed on it and the cost of selling it; the amount the homeowner or heirs get when the house is sold.
loan advances - payments made to a borrower, or to another party on behalf of a borrower
loan balance - the amount owed, including principal and interest; capped in a reverse mortgage by the value of the home when the loan is repaid.
lump sum - a single loan advance at closing
margin - in the HECM program, the amount added to the one-year Treasury rate to determine the initial and current interest rates, and to the 10-year Treasury rate to determine the expected interest rate
maturity - when a loan must be repaid; when it becomes "due and payable"
mortgage - a legal document making a home available to a lender to repay a debt
non-recourse mortgage - a home loan in which the borrower can never owe more than the home's value at the time the loan is repaid
origination - the process of setting up a mortgage, including preparing documents
property tax deferral (PTD) - reverse mortgages that pay annual property taxes; usually offered by state or local governments
proprietary reverse mortgage - a reverse mortgage product owned by a private company
reverse annuity mortgage - a reverse mortgage in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life.
reverse mortgage - a home loan that gives cash advances to a homeowner, requires no repayment until a future time, and is capped by the value of the home when the loan is repaid
right of recission - a borrower's right to cancel a home loan within three business days of the closing
servicing - administering a loan after closing, such as maintaining loan records and sending statements
shared equity - an itemized loan cost based on a percent of a home's value at loan maturity; for example, a 5% shared equity fee on a home worth $200,000 at maturity would be $10,000
Supplemental Security Income (SSI) - a federal monthly income program for low-income persons who are aged 65+, blind, or disabled
tenure advances - fixed monthly loan advances for as long as a borrower lives in a home
term advances - fixed monthly loan advances for a specific period of time
Total Annual Loan Cost (TALC) rate - the projected annual average cost of a reverse mortgage including all itemized costs
T-rate - the rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program
uninsured reverse mortgage - a reverse mortgage that becomes due and payable on a specific date